India Ratings revises FY21 GDP growth to -11.8%, lowest in Indian history; sees recovery by FY22

Follow us on

Domestic rating agency India Ratings and Research on Tuesday revised downward the country's FY21 GDP growth forecast to (-) 11.8 per cent, lowest in Indian history, from an earlier estimate of (-) 5.3 per cent. The agency, however, expects the economy to grow at 9.9 per cent in FY22 helped mainly by the weak base of FY21.

“India Rating''s FY21 GDP growth forecast of negative 11.8 per cent will be the lowest GDP growth in the Indian history (GDP data is available from FY-1951) and sixth instance of economic contraction, others being in FY-1958, FY-1966, FY-1967, FY-1973 and FY-1980. The previous lowest was negative 5.2 per cent in FY-1980,” the rating agency said in a report.

It estimates economic loss in FY21 to be Rs 18.44 lakh crore.

In the April-June quarter of FY21, GDP grew at (-) 23.9 per cent. It is the first contraction in quarterly GDP data series which have been made available in the public domain since the first quarter of FY-1998.

According to the agency''s principal economist Sunil Kumar Sinha, none of the quarters in the current fiscal are going to witness a positive rate of growth.

“For that (positive growth), we will have to wait for the fiscal year 2022. And in FY22, it is not going to happen in the first or the second quarter. It will probably happen in the third or the fourth quarter,” he said while addressing a webinar.

The agency said the economic disruption caused by COVID-19 has had a telling impact, not only on the economy but also on jobs and livelihoods. However, it has been more pronounced in the unorganised sector, leading to huge reverse migration.

“Although there is some evidence of migrant workers returning to urban areas, the process is likely to be slow. Private final consumption expenditure growth therefore is now estimated to clock negative 12.8 per cent, down from the earlier estimate of negative 5.1 per cent,” it said.

The only bright spot from the supply side is agriculture, as both industry and services activities have been severally impacted, it said. The agriculture sector is expected to grow at 3.5 per cent year-on-year (YoY) in FY21.

The rating agency, however, said GDP is expected to rebound and grow at 9.9 per cent YoY in FY22 mainly due to the weak base of FY21.

“The base effect will certainly play out. The recovery will happen but it will not be that strong. On the real GDP basis, it is only in the fourth quarter of the next fiscal we expect that the size of the economy will be bigger than the fourth quarter of FY20,” the agency''s chief economist Devendra Kumar Pant, said.

The agency now forecasts the central government fiscal deficit to increase to Rs 15.17 lakh crore in FY21 (FY21 (BE): Rs 7.96 lakh crore, FY20 (provisional): Rs 9.36 lakh crore).

“Fiscal deficit is going to be higher than what is budgeted. Our estimate is that it will be 8.2 per cent in the current fiscal. The economic activities are not happening and also the entire world is passing through a similar situation. Neither the exports nor the imports are really happening,” Sinha said.

According to Sinha, monetisation of the fiscal deficit will be the last resort for the government.

“They would not like to use it as a first or second choice, it will be the last choice when they will run out of all the options,” he said.

In the wake of both weak global and domestic demand conditions, the agency expects the country''s current account to record a surplus of USD 8.4 billion (0.3 per cent of GDP) in FY21 (FY20: deficit of USD 24.7 billion, negative 0.9 per cent of GDP).

The retail and wholesale inflation is estimated to be at 5.1 per cent and (-) 1.7 per cent, respectively, in FY21, it said.

Inflation in FY21 will be largely governed by monsoon rainfall, which was 9 per cent above normal as on September 2, 2020; global commodity prices especially crude oil and monetary/fiscal policy pursued by the RBI/government to mitigate COVID-19 impact, the agency said.